Bitcoin surges 11% to new record after developers cancel controversial upgrade

Bitcoin jumped to a record high on bets a major test to the biggest digital currency has been called off

Bitcoin jumped as much as 11 per cent to US$7,882 after the main architects behind an upgrade to its underlying technology known as Segwit2x, which would have caused the chain to split in what's known as a hard fork, cancelled their controversial plans.Chris Ratcliffe/Bloomberg

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Bitcoin soared to a record after a technology upgrade that was threatening to disrupt the biggest cryptocurrency was called off, removing another concern for mainstream investors captivated by this year’s more-than-sevenfold gains.

The virtual currency jumped as much as 11 per cent to US$7,882 after the main architects behind a change to its underlying software, known as SegWit2x, cancelled their controversial plans, saying they wanted to avoid deepening divides in the developer community.

Bitcoin developers, users and miners — those running computers that crunch the complex math required to verify transactions — have been trying to agree on ways to make transactions faster, as the network’s growing popularity has led to congestion. After an initial upgrade in August known as SegWit, short for Segregated Witness, a group in the bitcoin community was calling for SegWit2x. The second upgrade hadn’t gained as much support and was only a week away from confronting bitcoin with one of its hardest tests ever.

Bitcoin has climbed from about US$6,00O since CME Group Inc., the world’s largest exchange owner, said on Oct. 31 that it wants to offer bitcoin futures by the end of the year, only a month after dismissing such a plan. Cboe Global Markets Inc. said in August that it wants to sell futures. Both need approval from the U.S. Commodity Futures Trading Commission.

Skeptics of the digital currency ranging from billionaire Warren Buffett to JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon have warned that the unregulated asset is a speculative bubble in danger of bursting.

Community Divisions

SegWit2x’s goal was to double bitcoin’s blocksize to two megabytes, which in practice increases speed and reduces fees. While most miners and many businesses supported the change, many of bitcoin’s core developers opposed it, leading to bitter and public fights, including a high-stakes bet of 1,000 bitcoin between Roger Ver, an early investor in bitcoin who is known as “Bitcoin Jesus,” and Charlie Lee, the founder of the fifth-largest digital coin, Litecoin.

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In interviews before the upgrade was called off, Ver said users should be “excited because it makes bitcoin faster and cheaper” and called opponents a “loud and vocal minority,” while Lee said the change “could destroy the faith of bitcoin as a cryptocurrency.”

The lack of consensus meant the upgrade couldn’t be implemented without breaking the chain. The main proponents of SegWit2x said in a statement Wednesday they decided to call off the hard fork because of this reason.

Bitcoin Offshoots

“Although we strongly believe in the need for a larger blocksize, there is something we believe is even more important: keeping the community together. Unfortunately, it is clear that we have not built sufficient consensus for a clean blocksize upgrade at this time,” developers and industry leaders including Jeff Garzik, Jihan Wu and Wences Casares wrote.

Users worried about potential disruptions the upgrade could cause as SegWit2x, unlike previous forks like Bitcoin Cash and Bitcoin Gold, didn’t have so-called replay protection. This means it might be possible to run the same transaction through two networks. Exchange Coinbase planned to disable trading of bitcoin for eight hours before the fork, for example.

Bitcoin had rallied after the Bitcoin Cash fork didn’t cause any problems on the main network. Bitcoin Cash, which allows for bigger block size, is now trading at US$587. Bitcoin Gold, another digital asset that split from bitcoin, now trades at US$140.

“There was definitely risk involved so, in that respect, it’s great to have that risk taken off the table — at least for now,” said Spencer Bogart, head of research at Blockchain Capital LLC. “It would have been great for bitcoin to prove its resiliency once again and to strike this scenario off the ‘fear list.’ Overall though, the cancellation of the 2x fork highlights bitcoin’s resiliency and reaffirms bitcoin’s status as the honey-badger of money.”

SegWit2x futures had been trading at around US$1,500 Tuesday, signalling it still didn’t have enough support to overtake bitcoin. They’ve plunged to US$278.

That said, some industry insiders say bitcoin developers may still need to implement SegWit2x at some point — perhaps next year, Meltem Demirors, director of Digital Currency Group, said in a tweet Wednesday.

But as the uncertainty and the infighting around the hard-fork was lifted at least temporarily, it clears the way for institutional investors preparing to enter the space, with bitcoin derivatives and even exchange traded funds potentially on the way.

“When you have toxic conversations on Twitter between CEOs of large companies involved with bitcoin, it turns off mom and pop users because nobody needs drama in their life,” said David Mondrus, chief executive of Trive, a blockchain-based research platform. “It also turns off money. Institutional investors have concerns about trusting 25-year-olds writing code who can’t even be civil to each other.”

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